Rainbow Foundations RI review (Avoid)

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•    RFL is engaged in the realty development and marketing business. 
•    Its financial performance so far is very average and does not match the asking price.
•    There is no harm in ignoring this issue as post-RI its equity jumps nearly ninefold. 

Rainbow Foundations Ltd. (RFL) was originally incorporated as "Rainbow Holiday Resorts International Ltd. Now it has changed its name to the current one. Since its inception, RFL has been engaged in identifying, developing and promoting highly potential real estate for the purpose of development and selling of commercial and residential apartments in various places of Tamil Nadu.  It is also engaged in the development and marketing of plots and pieces of land in Chennai. 

So far it has completed 36 projects. Currently, it is developing residential projects in the prime locations of the city like Choolai and Purasawalkkam. It has up the sleeve five more projects which are yet to be finalized. It has a team of over 25 real estate consultants located in Chennai, Trichy, Madurai and Kodaikanal for the marketing of apartments. As of the date of this offer document, it had 18 employees on its payroll. 

To part finance its funding needs for the redemption of non-convertible preference shares (Rs. 36.50 cr.), general corporate purpose (Rs. 11.67 cr.), RFL is coming out with a rights issue (RI) of 44104800 equity shares of Rs. 10 each at a fixed price of Rs. 11 per share to mobilize Rs. 48.52 cr. The company is offering RI in the ratio of 8 for 1 to the registered shareholders on the record date of March 11, 2022. The issue has already opened for subscription today i.e. March 25, 2022, and will close on April 18, 2022. Investors have to pay the full amount on the application. Post allotment, shares will be listed on BSE. RFL is spending Rs. 0.35 cr. for this RI.

The issue is solely lead managed by Turnaround Corporate Advisors Pvt. Ltd. and Cameo Corporate Services Pvt. Ltd. is the registrar. 

Post RI, RFL's current paid-up equity capital of Rs. 5.51 cr. will stand enhanced to Rs. 49.62 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 54.58 cr. 

On the financial performance front, for the last two fiscals, RFL has reported turnover/net profits of Rs. 29.16 cr. / Rs. 1.70 cr. (FY20) and Rs. 37.68 cr. / Rs. 1.14 cr. (FY21). As per unaudited results, for the first nine months of FY22, it has earned a net profit of Rs. 0.28 cr. on a turnover of Rs. 35.16 cr. 

The company has not paid any dividends since incorporation. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

The scrip last closed on cum-right basis at Rs. 27.35 on March 09, 2022, and opened on the ex-rights basis at Rs. 13.45 on March 10, 2022. Since then, it has posted a high/low of Rs. 15.50 / Rs. 11.45. It last closed at Rs. 11.55 (on March 24, 2022) and based on this closing, its market cap on post-RI stands at Rs. 57.31 cr. It has posted the last 52 weeks high/low of Rs. 18.76 / Rs. 3.56. Its promoter's holding has been 33.93% since the last three quarters. The counter is well operated to lure investors for investment in this RI.

Conclusion / Investment Strategy

RFL’s RI is fully priced based on its past performance and the financial data so far. There is no harm in ignoring this issue as it has not shown any remarkable performance so far and the promoter’s holding is very low.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Mar 24, 2022

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

More Rainbow Foundations Limited RI Views / Analysis / Recommendations ...

The Rainbow Foundations Rights Issue Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered Rights Issue Analysts tells you if Rainbow Foundations Rights Issue worth investing. The Rainbow Foundations Rights Issue Note sets the Rights Issue expectations in systematic way which tells you if Rainbow Foundations Rights Issue good to buy (good or bad / yes or no). The Rights Issue Forecast tells you weather to invest in Rainbow Foundations Rights Issue by providing Rights Issue recommendations i.e. subscribe, avoid and neutral.